Expand Your Advisory Services: Selling Beyond the 401(k)

Cash balance plans, also known as hybrid plans, combine the high contribution limits of traditional defined benefit plans with the flexibility and portability of a 401(k) plan. Each eligible participant has an account that grows from both an employer contribution and a guaranteed interest credit. 

 Business that might be a good fit:

• Principals seeking a tax deduction of more than $66,000 in 2023 ($73,500 if age 50+) or are making more than $265,000 per year
• Highly profitable
• Family-owned or closely held
• Professional services firms, such as CPAs, law firms, or medical groups
• Older owners who need to catch up quickly on retirement savings
• Looking for competitive advantages to attract talented employees 

 How can clients benefit?

• Business owners can save significantly on corporate and personal taxes.
• Many owners can double or even triple their pre-tax retirement savings.
• It can make a firm’s retirement package much more appealing to future partners and employees.
• Different contribution amounts can be specified for different participants or groups of employees.
• Participants can roll over their cash balance accounts into an IRA or another qualified plan.

Employee Stock Ownership Plan (ESOP) 

An ESOP gives employees an ownership stake in the company. The employer allocates a percentage of the company’s stock shares to each eligible employee. The distribution of shares can be based on the employee's pay scale, terms of service, or some other allocation. 

 Business that might be a good fit

• Strong, stable cash flow and high profitability
• Exploring an exit strategy but don’t want to sell to a competitor
• Want to empower employees to think like owners vested in the company’s performance
• Prefer to keep company stock in friendly hands 

 How can clients benefit?

• An ESOP provides tax advantages for shareholders selling stock in a closely held C corporation.
• An ESOP provides a market for thinly traded stock and allows employers to make dividends deductible at the corporate level.
• These plans can enable business perpetuation when there is no buyer for a departing owner as well as liquidity for estates of business owners.
• ESOPs can facilitate enhanced employee engagement, recruitment, and retention. 

Nonqualified Deferred Compensation (NQDC) plans 

NQDC plans are typically used by companies to actively retain and reward key employees, usually high-level leadership. There are four types of nonqualified plans:

• Executive bonus plans
• Group carve-out plans
• Deferred-compensation plans
• Split-dollar life insurance plans 

 Business that might be a good fit

• Creating a performance-driven environment or a transition plan for successors
• Prefer a bonus structure for key personnel that defers their taxes until retirement and potentially a lower tax bracket
• Want to offer additional incentives and benefits not available with qualified plans 

 How can clients benefit?

• Benefits are realized in the future or forfeited if certain conditions aren’t met, which creates longer-term employment commitments to the company.
• Deferred assets remain a part of the company’s assets and can be used for business purposes.
• These plans allow for more flexibility in participation eligibility because they are exempt from nondiscrimination and top-heavy testing rules. 

Start the conversation 

Not all employers are ideal candidates. To find potential matches, evaluate your client roster and identify characteristics that match those above. Then, begin probing with some simple lead-ins to spark further conversation: 

 "I've heard from clients they are struggling to attract and retain employees. If you're experiencing the same thing, I have some ideas to help." 

 "Your 401(k) plan has been successful in getting all employees to save. I'd like to tell you about other retirement plans that can help owners and high performers save even more."